Mortgage Rates Likely Headed to 4.5%: Pimco's Gross

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Government action to shore up the economy and improve the housing climate probably will send mortgage rates to 4.5 percent, Bill Gross, co-CEO at the Pimco bond fund, said Monday.

In addition to driving down mortgage rates and stimulating home-buying, the government's efforts also could include a move to cap Treasurys rates to encourage investors to take more risk, Gross said during a live interview on CNBC.

"I think at some point we're going to see a 4.5 percent mortgage rate and the 10-year Treasury rate capped at some level," he said. "When the Fed comes in to buy Treasurys that will be a big day."

Looking ahead at the government initiatives he expects to see in an announcement Tuesday, Gross said the government likely will inject more capital into needy banks only. He also said the government will expand the Term Asset-Backed Securities Loan Facility, or TALF, which aims to free up the ABS market.

That in turn would make commercial mortgage-backed securities an attractive investment, said Gross, head of the world's largest bond fund.

At the same time, he warned against government over-reaching that would lead to the nationalization of some of the nation's biggest banks, a move that would wipe out shareholder equity.